Time To Cut Portfolio Risk: Mounting Headwinds Take Toll On Aging Bull
Summary Yellen, Shiller sound valuation alarm, Shiller PE at 27. Record margin debt poses significant issue once markets turn over, will lead to margin calls and extensive losses. Home equity loans resetting will increase homeowners' monthly payments as home equity loans and lines of credit begin to be repaid.
Easy money policies of central banks around the world hinders growth, inflation,
promotes leverage/risk, and will ultimately lead to more problems down the road.Stocks have enjoyed a vibrant bull market since bottoming in 2009, and now it is appropriate to begin deleveraging, limiting risks and taking profits. Since March 6, 2009, the S&P 500 has gained 184.06%, but lately has been showing signs of fatigue and overvalued.
Just yesterday, the markets were jolted by comments made by Federal Reserve Chairwoman Janet Yellen, who suggested that stock valuations "generally are quite high" and "are potential dangers". Professor Robert Shiller of Yale University confirmed Yellen's comments this morning in an interview, citing the loft valuation of the Shiller PE Ratio or CAPE Ratio. Currently, the Shiller PE Ratio stands at 27, which also happens to be the level in which the market topped at in 2007. Additionally, it is very close to the 1929 crash's value of 30. This certainly adds reasoning and support to the idea that US stocks are at high valuations historically and could be due for a pullback or worse.
Record margin debt poses big risks to marketsMargin is money that is borrowed from a broker or financial institution for the purpose of increasing buying power of stocks and other financial assets. In other words, margin allows investors to significantly leverage their portfolios based on money loaned to them.
As the market ages, eventually the party will come to an end and leveraged traders will be hit with margin calls and massive losses as they once again fail to learn from history.
Global economy built on easy moneySince the economic crisis and ever increasing since then, central banks around the world continue to promote easy money policies by cutting interest rates to the bone and provide liquidity in the markets through asset buying programs.
These are just four of the major issues facing the global economic environment currently. There are several other factors out there that I could have touched on such as oil markets, rising bond yields, uncertainty in China, other emerging market issues, Russian aggression, Middle East unrest, etc. However, I believe the point has been made. Stocks face several headwinds that are quite serious, as I mentioned above and this is why investors should take the opportunity now to book profits, deleverage their portfolios and cut ties to riskier assets.http://seekingalpha.com/article/3158546-time-to-cut-portfolio-risk-mounting-head...=======================================================
The music, is coming to the climax, SHORTLY and when it stops, there won't be enough seats for all and many will come crashing back to Earth with a thud!
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